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Price and volume dynamics in bubbles

Liao, Jingchi and Peng, Cheng (2019) Price and volume dynamics in bubbles. . SSRN, London, UK.

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Identification Number: 10.2139/ssrn.3188960

Abstract

We propose a framework based on two ingredients—extrapolative beliefs and the disposition effect—and show that it can generate the sharp rise in both prices and volume observed in many bubbles. We test this framework using novel, account-level data on the 2014–2015 Chinese stock market bubble. The interaction of extrapolative beliefs and the disposition effect explains 30% of the rise in volume. Investors who are both extrapolative and prone to the disposition effect are quick to buy a stock with positive past returns, but also quick to sell it if good returns continue.

Item Type: Monograph (Working Paper)
Additional Information: © 2019 The Authors
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Date Deposited: 11 Oct 2019 11:36
Last Modified: 24 Oct 2020 23:15
URI: http://eprints.lse.ac.uk/id/eprint/102057

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